'Black Swan' IT Projects With Out-of-Control Budgets Can Kill Enterprises

Major
IT projects are 20 times more likely to fail than other business projects,
according to a recent study from Oxford University.
IT
projects on average are 27 percent over budget and take 55 percent longer to
complete than originally planned, researchers from the University
of Oxford's Said Business School's BT Centre for Major Program Management
said Aug. 22. Researchers analyzed 1,471 global projects where the organization
had revamped its information technology systems within the last 10 years. The
projects were worth a total of $245 billion, and on average cost $170 million.

After
comparing their budgets and estimated performance benefits with actual costs
and results, researchers found that project managers were not taking into
account unpredictable events when planning IT projects. Instead, they focused
on the average performance of previous projects. When the projects spiraled out
of control, both the careers of the managers and the future of the organization
were at risk, the researchers found.

"IT
projects are now so big and touch so many aspects of business, government and
citizens' lives that this poses a singular new challenge for top
managers," said Prof. Brent Flyvbjerg, principal investigator and BT professor
and founding chair of Major Program Management. Companies may be hit by an
out-of-control project when they are already facing difficulties and can't
afford the increased costs.
While
projects on average overran expectations by 27 percent, some projects
encountered rare and huge events that should have been identified at the start.
Researchers called these projects "black swan" IT projects and said
the issues generally came toward the end of the projects to catch project
managers by surprise. Black swan projects are impossible to predict and on
average go 197 percent over budget and take 68 percent more time than expected,
according to the study.
"Any
company contemplating large technology projects should ask whether the company
is strong enough to absorb the hit should it go over budget by 400 percent.
Although this figure may seem excessive, as our research shows, costs such as
these can occur all too frequently," said Flyvbjerg.
While
there are no indicators that some industry sectors are more prone to black
swans than others, researchers found some project types are more likely to
spiral out of control. For example, the risk of cost overruns in hardware
infrastructure projects is low while the risk in software projects is high.
The
study drew heavily on public agencies and U.S.-based projects, but there was
little difference between them and the projects at private companies and
European organizations in the study, researchers said.
"People
always thought that the public sector was doing worse in IT than private
companies-our findings suggest they're just as bad," Flyvbjerg told BBC.
Organizations
should keep the project's scope in mind and make every decision in the project
based on business benefits. Only 20 percent of the surveyed projects analyzed
the business benefits before making decisions.
"Rotten-egg
IT projects have brought down well-known brands such as Kmart and the U.K.'s
second largest car glass company, Autowindscreens," said the researchers.
The companies collapsed while trying to implement large IT projects, and
others, including Airbus, Levi-Strauss, TollCollect and Hershey's, have been
"on the brink of collapse" because of problems with IT projects, the
Oxford researchers found. Flyvbjerg said he would not be surprised if another
"large, established company" fails in coming years for the same
reason.
The
researchers said companies need to take more notice of low-probability, but
high-impact risks, and to consider whether they have the expertise for the
project. Managers also need to consider software compatibility and other
existing or predicted economic factors that might affect their company's
ability to handle delays in the project and increased costs.